With June 30 fast approaching, it’s time to start thinking about your super for another year.
Taylors Strategic Partner - Michael Sik, Financial Adviser and Owner of FinPeak Advisers - has put together five smart strategies that may benefit you now and help boost your super.
#1 Add To Your Super And Get A Tax Deduction – if you are employed, self-employed or earn a taxable income from other sources (such as investments), then you may be able to make an after-tax contribution and claim a tax deduction. The big catch is that you can only contribute up to $25,000 as a concessional contribution (including employer and salary sacrifice contributions) this financial year. It is also noted that from FY19, any unused contributions may be carried forward and utilised in a later year.
Why? Pay less tax on your income and increase your retirement savings
#2 Get More From Your Salary Or Bonus – if you are an employee, then you could potentially arrange for your employer to contribute some of your pre-tax salary or a bonus into super, as part of a salary sacrifice agreement. Please note the concessional contribution caps above.
Why? Pay less tax on your income and increase your retirement savings.
#3 Convert Your Savings Into Super Savings – if you have money outside your super that you’d like to invest for retirement, you could make an after-tax super contribution to super of up to $100,000 as a non-concessional contribution this financial year or trigger the bring-forward rule and contribute up to $300,000 (note you will not be allowed to contribute further in the next two years).
Why? Pay less tax on your investment earnings and increase your retirement savings.
#4 Get A Super Top-Up From The Government – If you earn less than $54,838 pa from your job or business, you could make an after tax super contribution.
Why? Receive a Government co-contribution of up to $500 and increase your retirement savings.
#5 Boost Your Spouse's Super And Reduce Your Tax – If you have a spouse that earns less than $40,000 pa you could make an after-tax contribution of up to $3,000 into your spouse’s super account.
Why? Receive a tax offset of up to $540 and increase your spouse’s retirement savings.
To use any of these strategies you’ll need to meet certain conditions. Contribution caps and thresholds are also increasing from 1 July 2021. This may impact contribution strategies and should be considered when deciding whether to contribute in FY 2020/21. A financial adviser can assess your eligibility and help you decide which strategies are appropriate for you.
The Tax Advantages Of Saving In Super
Saving more in super can come with tax and other benefits this financial year – but that’s just the start. Once money is invested in super, earnings are taxed at a maximum rate of 15% – instead of your marginal tax rate, which may be up to 47%. This low tax rate can help you build up savings for your retirement. When you do retire, you can also transfer your super into a ‘retirement phase’ pension. Here, you won’t pay tax on investment earnings, and any income payments you receive from age 60 onwards are tax-free.
Tips And Traps
Before you add to your super, keep in mind you won’t be able to access the money until you meet certain conditions. There are caps on how much you can contribute to super each year. It’s important to take the caps into account, as penalties may apply if you exceed them. Make sure any contributions you want to make this financial year are received by your fund before June 30. With electronic transfers (including Bpay), the contribution takes effect the day your super fund receives the money, not the day you make the transfer.
Other eligibility criteria and conditions apply in relation to these strategies. Further information can be found on the Australian Taxation Office website.
Splitting Your Concessional Contributions With Your Spouse – some people may want to split some of their eligible concessional contributions to their spouse’s super account (up to 85% after 15% has been taken out for tax).
Why? This may help your spouse cover insurance premiums, if your spouse is older it may mean that you might be able to access the retirement savings sooner, maximise how much becomes tax free retirement savings, maximise Age Pension.
Utilising The Instant Write-Off Scheme – Under the now closed scheme, if you run a small business with a total turnover of less than $500m may be able to claim a full upfront tax deduction of up to $150,000 in the 2020/21 financial year for any eligible depreciating assets first used or installed ready for use between 12 March 2020 until 30 June 2021, and purchased by 31 December 2020.
Further small business tax concessions were made available to businesses from 6 October 2020 until 30 June 2022, which expand concessions for businesses with certain levels of aggregated turnover.
Pre-Paying Expenses – Pre-paying deductible expenses can bring forward the tax deduction and reduce assessable income. Examples include:
- Paying final quarter SG contributions before 30 June (the payment deadline is 28 July 2021);
- Pre-paying up to 12 months premiums on an income protection policy held outside super; and
- Pre-paying 12 months interest on a fixed rate investment loan.
Managing Capital Gains – There are a range of strategies that could be used to manage capital gains tax (CGT) . These include:
- Selling assets that trigger a capital loss. The loss can be used to offset capital gains realised in the same financial year. Before recommending this strategy, make sure the ‘wash sales’ provisions aren’t breached and it should be appropriate to sell the asset.
- Making a personal deductible super contribution (perhaps by also utilising the catch-up rules) to offset some or all of a taxable capital gain from the sale of an asset in the same financial year (see above).
- Deferring the sale of assets that would give rise to a capital gain until a future financial year. This defers paying CGT. This could also reduce the CGT payable if the client’s taxable income is sufficiently lower in the future financial year (eg they have retired) and/or they qualify for the general 50% CGT discount by extending the period of ownership beyond 12 months.
Defer Retirement/Redundancy To The New Financial Year – Deferring retirement (or a redundancy where discretion is available) to a new financial year may reduce the amount of tax payable on unused leave and lump sum termination payments if income from other taxable sources is lower.
Like To Learn More?
To find out more about how a financial adviser can help, please contact Michael Sik on 0404 446 766